TMI Blog2022 (7) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... gly we are of the view that these two companies can be taken as comparable companies. We direct the AO/TPO to take these two companies also as comparable companies. Accordingly, we restore this issue to the file of AO/TPO for determining ALP of the transaction afresh. TP Adjustment - international transaction pertaining to marketing and sales support services in relation to American Depository Receipt (ADR) - HELD THAT:- Companies functionally dissimilar with that of assessee need to be deselected. We restore this issue to the file of AO/TPO for determining ALP of the transaction afresh by excluding all the above said three companies [Sumedha Financial Services Limited, Sundaram Finance Distribution Limited AND L T Capital Company Limited] - It is pertinent to note that the assessee had voluntarily made transfer pricing adjustment under this segment. AO/TPO may deal with the same in accordance with law. Companies functionally dissimilar with that of assessee investment advisory activities also be deselected. Deduction towards adjustment for Additional cost incurred for unrelated party trades and Additional interest earned for related party trades - HELD THAT: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Singh (JM) Assessee by Shri Percy J. Pardiwalla Shri Fenil Bhatt Department by Dr. Yogesh Kamat ORDER Per B.R.Baskaran (AM) The assessee has filed this appeal challenging the assessment order passed by the assessing officer for assessment year 2009-10 u/s 143(3) r.w.s. 144C of the Act in pursuance of directions given by Ld Dispute Resolution Panel (DRP). The grounds of appeal urged by the assessee give rise to the following issues:- (a) Transfer pricing adjustment made in respect of international transaction pertaining to origination and marketing support services in respect of investment banking mandates. (b) Transfer pricing adjustment in respect of international transaction pertaining to marketing and sales support services in relation to American Depository Receipt (ADR). (c) Transfer pricing adjustment in respect of international transactions pertaining to sub-advisory, research and other support services and investment advisory services (both original ground and additional ground) (d) Transfer pricing adjustment in respect of international transactions pertaining to research support services. (e) Transfer pricing adjustment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as companies involved in investment/merchant banking activities. Accordingly, a fresh set of following eight comparable companies were submitted by the assessee to the bench as well as to the D.R:- Sr. No. Comparable selected by Name of the companies Nature of activity Operating Margin for the A.Y. 2009-10 1 Common Almondz Global Securities Ltd Investment Banking 0.75% 2 Common Sumedha Fiscal Services Ltd Investment Banking 65.28% 3 Common KJMC Global Markets (India) Ltd Investment Banking 43.38% 4 Assesses SREI Capital Markets Ltd Investment Banking -17.44% 5 Assessee New Edelweiss Capital Limited (Segment) Investment Banking 12.06% 6 Assessee New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oriented work, requiring immense experience in the field of finance, economics and legal environment. Hence the functions performed by the assessee are complex requiring very high level of knowledge and expertise. Accordingly, the Ld D.R submitted that the comparable companies have to be selected taking into consideration all these aspects. He further submitted that blending approach adopted by the assessee is fraught with risks. He submitted that the selection of companies involved in mere distribution of financial products like LIC policies, Mutual fund schemes would not be appropriate. Hence companies like M/s Karvy stock broking (involved in distribution of mutual fund products) and M/s Birla Sunlife distribution company Ltd (involved in distribution of insurance products) are not appropriate comparable companies. The Ld D.R also placed his reliance on the report dated 29-09-2016 furnished by the TPO in respect of revised set of comparable companies selected by the assessee. 3.4 The Ld A.R, however, submitted that the fact that the assessee is having own set for undertaking merchant banking activities is irrelevant here, since the assessee is operating as merchant banker onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing; Debt syndication; Underwriting services Edelweiss Capital Limited Investment banking; Mergers and acquisition advisory services; Private placement of equity Portfolio management Keynote Corporate Services Limited Corporate advisory services Mergers and acquisitions Underwriting Portfolio management Private placement of securities Corporate advisory services Table II Name of the company considered comparable by the learned TPO and Hon'ble DRP Functional profile Almondz Global Securities Limited Merchant banking; Acting as arranger of debts/bonds, loan syndication; Corporate and infrastructure advisory; Mergers and acquisition Advisory; Underwriting; Portfolio management KJMC Global Markets (India) Limited Merchant banking; Term loan/debt syndication; Advisory services; Private placements of bonds and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue to the file of AO/TPO for determining ALP of the transaction afresh by including all the above said five companies. 4.0 The next issue relates to the transfer pricing adjustment made in respect of international transaction pertaining to marketing and sales support services in relation to American Depository Receipt (ADR). The Ld A.R submitted that the AEs of the assessee are rendering depository services for ADR program, wherein the AE basically acts as depositories for the clients who have their ADRs listed. Under this segment, the assessee is providing marketing and sales support services for canvassing for its AE s depository services. He submitted that the TPO has selected following five companies for this segment:- (a) Almondz Global Securities Ltd (Distribution operations segment) (b) Birla Sun Life Distribution Company Limited (c) L T Capital Company Limited (d) Sundaram Finance Distribution Ltd. (e) Sumedha Fiscal Services Limited (Consultancy segment) 4.1 The Ld A.R submitted that the assessee seeks exclusion of L T Capital Company Limited, M/s Sundaram Finance Distribution Ltd and M/s Sumedha Finance Distribution Limited. 4.2 We heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected in the assessee s own case in AY 2006-07 by the Tribunal in ITA No.8193/Mum/2010. (ii) The Ld D.R submitted that the assessee itself has selected this company as a comparable in its transfer pricing study. Further, the assessee has not sought for exclusion of this company before the lower authorities. (iii) In the rejoinder, the Ld A.R submitted that the assessee had included a company as comparable in its TP study in AY 2006-07 also and sought for exclusion of the same before ITAT. He submitted that the ITAT has accepted the plea of the assessee in that year, following the decision rendered by the Special bench of Tribunal in the case of DCIT vs. Quark Systems (P) Ltd (132 TTJ CHD (SB) 1). The Tribunal has observed that the purpose of income tax assessment is to arrive at the correct tax liability of the assessee and it is not dependent on what position the assessee had taken, but the same is determined having regard to the applicable legal position. (iv) We notice that this company is following different business model, i.e., it does not have work force and it gets its work done on outsourcing basis. On similar set of facts, the co-ordinate bench has rejected thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single year data, the assessee revised its set of comparable companies to seven. Rejecting the transfer pricing study of the assessee, the TPO selected following six companies:- (a) Integrated Capital Services Limited (b) Khandwala Securities Limited (c) KJMC Corporate Advisors (India) Limited (Formerly known as KJMC Global Market (India) Limited) (d) L T Capital Company Limited (e) Sumedha Fiscal Services Limited (Consultancy segment) (f) Motilal Oswal Investment Advisors P Ltd The Ld DRP upheld selection of above said comparable companies. 5.2 Before us, the assessee seeks inclusion of five companies and exclusion of 5 companies selected by TPO. The assessee seeks inclusion of following five companies:- (a) ICRA Management Consulting Services Limited (b) IDC (India) Limited (c) Informed Technologies Limited (d) Kinetic Trust Limited (e) Access India Advisors Limited. The assessee seeks exclusion of following five companies:- (i) Khandwala Securities Ltd (ii) KJMC Corporate Advisors (India) Limited (iii) Sumedha Fiscal Services Ltd (iv) L T Capital Company Ltd (v) Motilal Oswal Investment Advisors P Ltd 5.3 We shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is providing consultancy, advisory and financial services. Hence the services rendered by the assessee are comparable with the services rendered by this company. It was submitted that this company has been held to be comparable one to an investment advisor by the Tribunal in the case of Temasek Holdings Advisors (India) P Ltd (AY 2007-08 (ITA 4203/Mum/2012), AY 2008-09 (ITA 6504/Mum/2012) and AY 2010-11 (ITA No.776/Mum/2015). We notice that the Tribunal is consistently holding this company as comparable one. Accordingly, we direct inclusion of this company. (e) Access India Advisors Limited:- This company is engaged in providing management consultancy and business advisory services. This company has been accepted as comparable by TPO in AY 2008-09. It is submitted that this company is held to be comparable to an investment advisory company in the case of Temasek Holdings Advisors India P Ltd vs. DCIT (ITA No.776/Mum/2015) by the Tribunal. Accordingly, we direct inclusion of this company. 5.4 We shall now examine the companies sought to be excluded by the assessee:- (i) Khandwala Securities Limited:- It is submitted that the company has got two reportable se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Limited:- It is submitted that this company operates in a single segment of portfolio management services, mutual fund distribution services and merchant banking services. It has generated more than 95% of its income from syndication fees, which is not comparable with investment advisory. In AY 2010-11, the TPO himself has rejected this company. It is also submitted that this company was rejected by the Tribunal in the case of Carlyle India Advisors P Ltd (ITA No. 7901/Mum/2011 relating to AY 2007-08) and there is no change in facts. In view of the above, we direct exclusion of this company. (v) Motilal Oswal Investment Advisors P Ltd:- It is submitted that this company has reported single segment and the activities consist of comprehensive investment banking solutions, transaction expertise covering private placement of equity, debt and convertible instruments, mergers acquisitions advisory and restructuring advisory and implementations. It is submitted that the Tribunal has held in the case of DCIT vs. Arisaig Partners India P Ltd (ITA No.1083/Mum/2014) that this company is not comparable to investment advisory activities. In view of the above, we direct e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the order passed by the Tribunal in AY 2002-03). Though the above said decision was rendered by the Tribunal for Broking services in Cash segment , we agree with the submission of Ld A.R that the underlying principle shall equally apply to the present transactions of Broking services in F O Segment . Accordingly we direct the AO/TPO to allow adjustment towards additional cost incurred in providing services to unrelated parties. 7.4 We notice that the Tribunal has allowed interest income adjustment on account of high volume of trades for related parties in AY 2006-07 (Paragraph 11.5 at page 22 of the order of the Tribunal) and the said decision of Tribunal has since been upheld by the Hon ble Bombay High Court. Accordingly, we direct the AO/TPO to allow adjustment towards additional interest income earned in respect of related party transactions. 7.5 Since the workings given by the assessee in respect of both these adjustments require verification at the end of AO/TPO, we restore this issue to their file for allowing both adjustments after verification of the workings given by the assessee. 8. The next issue relates to the disallowance of claim of loss arising fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion that the same is not acceptable, i.e., the AO has not given the basis on which he had to come to such a conclusion. Again the AO is confirming the disallowance, following the order passed by him in AY 2006- 07. We noticed that the Tribunal has allowed identical claim made in the assessment year 2006-07. Accordingly, following the order of the Tribunal, we direct the AO to allow this claim in this year. 9. Ground no.8 relates to the disallowance made u/s 14A of the Act. During the year under consideration, the assessee had earned dividend income of Rs.3,00,000/- and it disallowed a sum of Rs.30,000/- u/s 14A. The AO took the view that the disallowance should be computed in accordance with Rule 8D of IT Rules. Accordingly, he computed disallowance under Rule 8D(2)(iii) of I T Rules, being 0.50% of the average value of investments, which worked out to Rs.5,40,325/-. Accordingly, the AO disallowed the difference amount of Rs.5,10,325/-. The Ld DRP confirmed the same. 9.1 We heard the parties on this issue. The main contention of the assessee was that the investments are mainly strategic investments. The Ld A.R, accordingly, submitted that there is no ground for applying ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
